Senior Signals: Procrastination can prove costly when it comes to long-term care

When it comes time to plan for long-term care and the distribution of assets at death, procrastination can be hard on a family. Some people can feel over-whelmed. Some people find it hard to discuss this topic. Some are concerned about the cost of planning for long-term care. However, failing to plan can cost you and your family substantially.

Take the simplest case where someone dies unexpectedly and with no Will or other estate planning documents in place. What costs are being incurred here? The person’s entire estate will be probated and distributed in accordance with intestacy laws.

If you die intestate (without a Will), your estate will be distributed according to state statutes. This may not be what you would have wanted. For example, if our decedent is married and has children from a prior relationship, his current spouse could split the estate with the children from his prior relationship. If he is unmarried (but living with a partner), his assets could go to blood relatives rather than his partner. If a child has special needs and is an intestate heir, the child would receive a share of the estate and possibly lose eligibility for public benefits. These could be very high costs indeed.

However, it is more likely that you and/or your spouse will suffer a period of medical need prior to your death, requiring long-term care and possibly resulting in a period of incapacity. Failing to plan for this reality can be very expensive.

By not having advance medical directives and durable powers of attorney in place, any period of incapacity would result in the need for your family members to go to court to obtain conservatorship over your person and conservatorship over your finances. This is time-consuming and the cost of the proceeding can easily run into the thousands.

Long-term care insurance can help defray the costs of long-term care, but not everyone will qualify for insurance or can afford the premiums. Another cost of procrastination is that the cost of long-term care insurance goes up as you age. The best time to purchase long-term care insurance is in your early to mid-sixties.

Medicare only offers temporary assistance with rehabilitative and skilled nursing care, not long-term care needs. Therefore, for many middle-class Americans, Medicaid has become the primary source for payment of long-term care needs. What, then, are the costs of procrastination in planning for long-term care?

Medicaid has both income and resource eligibility requirements. One of the better known resource eligibility rules is that an applicant can have no more than $1,600 in his own name. Although with crisis planning, you may be able to shelter more assets than that, crisis planning is not as effective as five-year planning. Why five years? Medicaid has a five-year look-back period for gift transfers. With five-year planning, clients can make gifts to trusts that are not countable resources for Medicaid purposes, but which still allow the client a level of control over the assets and an ability to use certain assets, like a home, for his or her lifetime.

The sooner asset protection planning is completed, the sooner the five-year clock starts ticking. If the client applies for Medicaid more than five years after the transfer is complete, the transfer does not impose a penalty period that disqualifies him from Medicaid.

For every month that you procrastinate with long-term care planning, you extend the period of time during which you could find yourself in need of Medicaid, but may be ineligible because of a transfer. With the average cost of a nursing home in Connecticut around $15,000 per month, the difference between planning now and planning in a year could cost $180,000 or more.

When looked at this way, the cost of putting off planning for your long-term care can be quite significant and far exceeds the cost of planning properly. It is wise to start the process of protecting yourself and your family as soon as possible.

Attorney Daniel O. Tully is a partner in the law firm of Kilbourne & Tully, P.C., members of the National Academy of Elder Law Attorneys Inc., with offices at 120 Laurel St., Bristol (860) 583-1341.